It seems there is no end to the changes wrought by the coronavirus pandemic. In real estate, the shift has meant a flip of the script, with demand moving towards digital and rural markets.
And these changes seem here to stay. As the world moves towards a broader acceptance of remote work, the housing market is no longer limited to rapid appreciation in urban markets only. This carries powerful implications for equity and asset value in diverse real estate markets.
COVID-19 has changed housing forever. Here, we break down these changes, their implications for stakeholders, and how prospective homebuyers can gain an advantage.
The COVID-19 Effect
When the coronavirus pandemic struck, businesses and governments reacted fairly quickly in instituting a host of changes. First, work-from-home (WFH) options were built into business practices wherever possible to keep workers safe and social distancing. Next, government efforts to protect market activity have largely paid off.
Seventy-one percent of American workers whose jobs can be done virtually are now working from home, according to Pew Research. More than half of these workers also say they would continue working from home even after the pandemic is over, given the choice.
With the WFH trend unlikely to end anytime soon, rural markets are booming. This has led to an increase in home appreciation overall, with Zillow reporting the highest rate of annual appreciation since before the Great Recession.
The markets growing the most are mid-sized urban areas and their rural surroundings, places like Boise, Idaho, and Spokane, Washington. This means more value in a diversity of regions, shifting investor behaviors, and altered composition of rural demographics.
To keep home buying alive in every region, however, the Federal Reserve has brought interest rates down to all-time lows. As a result, the Millennial generation is fighting to achieve homeownership with an added incentive. Low mortgage interest rates mean even the rising prices from a low-supply market are offset somewhat.
These low-interest rates also have boosted the popularity of refinancing, with homeowners eager to reinvest their equity into home upgrades and remodels. Saved money from a mortgage payment means money saved during the remodeling process, which in turn can boost home values into unprecedented territory—especially in these up-and-coming rural markets.
All this activity also increasingly occurs online, with real estate brokerage Redfin reporting that now one-third of its tours are virtual. Home purchasing, along with work, has entered the digital realm.
But what are the implications of these changes for homebuyers and financiers?
Implications for Stakeholders
Those affected most by the COVID-19 shifts in real estate are the interested and invested stakeholders on the market. From prospective homebuyers to the banks that finance their endeavors, this means new considerations.
Millennials, for example, already saddled with over $1 trillion in collective debt can shift some of their debt into equity-building “good debt” through homeownership. This of course is dependent on whether these home buyers can secure a loan with tightening requirements for credit scores and other loan qualifications.
For financiers, low-interest rates require these tighter requirements. Everyone wants a low mortgage payment, but not every borrower will be able to secure repayment, especially with the ongoing economic uncertainty. As a result, becoming eligible for homeownership has become more competitive.
Additionally, the advantages and disadvantages inherent in rural life will be a wake-up call for many relocating homebuyers. When the coronavirus finally ebbs and urban draws like nightlife are booming again, new homeowners may find themselves regretting the change. Alternatively, the new life in these areas could open the door to unlimited economic opportunities in new markets.
Regardless, we are facing a competitive environment for home purchasing in midsized and rural markets. Getting ahead with competition this fierce requires homebuyer preparation.
How Homebuyers Can Gain an Advantage
Despite the limited national inventory of homes, low-interest rates and other purchasing incentives can be a great way to leverage your buying power. For instance, the Seattle-based company Loftium is offering to advance the down payment for new homebuyers if they agree to become Airbnb hosts. Opportunities like these can represent an advantage for those desperate to enter the market.
Even if you are denied a home loan due to poor credit, there are steps you can take to secure an advantage for the future. Find ways to build credit and cut down on your debt burden with a comprehensive personal budget and automatic payments to avoid paying late.
The rural and digital shift means the world of real estate is open to you. Meanwhile, record-low interest rates make investing in real estate now a great opportunity. Take advantage of market growth in these areas to secure your finances in the new market.
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